It is pertinent to here quote again from the Act, 26 U.S.C.A. § 272,-
'(e) Increase of deficiency after notice mailed. The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the taxpayer, and to determine whether any penalty, additional amount or addition to the tax should be assessed- if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing.
'(f) Further deficiency letters restricted. If the Commissioner has mailed to the taxpayer notice of deficiency as provided in subsection (a) of this section, and the taxpayer files a petition with the Board within the time prescribed in such subsection, the Commissioner shall have no right to determine any additional deficiency in respect of the same taxable year, except in the case of fraud, and except as provided in subsection (e) of this section, relating to assertion of greater deficiencies before the Board, or in section 273(c), relating to the making of jeopardy assessments. * * *'
When the Revenue Act of 1926 was reported by the Senate Finance Committee, their report commented as follows: 'Under the existing law and the House bill the 5 per cent and 50 per cent additions to the tax in case of negligence or fraud are to be assessed and collected in the same manner as if they were a deficiency, i.e., can only be assessed after the taxpayer had been sent a notice by registered mail. It sometimes occurs that after the deficiency letter has been sent out fraud or negligence is for the first time discovered by the Commissioner. In order to avoid the necessity of sending out a second notice to the taxpayer in such cases and other similar cases, it is provided in section 274(e), (now 272(e), I.R.C.), that the Board shall have jurisdiction upon the appeal from the original deficiency letter to determine whether any penalty, additional amount, or addition to the tax should be assessed, whether or not the Commissioner has asserted such claim in the deficiency letter or in his pleadings.' (Report of Senate Finance Committee, Cumulative Bulletin 1939, Page 353)
A part of the last sentence of the above quotation beginning with the words 'that the Board shall have jurisdiction', etc., is the language of the bill, as reported by the Senate Finance Committee. On the floor of the Senate the emphasized words 'whether or not' were stricken and the word 'if' substituted. That amendment was accepted by the House and has been the law since that time.
If an appeal to the Tax Court is taken from a statutory notice or deficiency for any taxable year, the Commissioner may not issue another statutory notice for such year but must file appropriate pleading before the Tax Court. In this case, as above indicated, the delinquency penalties which form the basis of this suit never were the subject of a statutory notice of deficiency and the Commissioner stoutly resisted the efforts of the taxpayer to make them a part of the controversy before the Tax Court until he belatedly confessed to a change of heart, that he was in error, that the penalties were in controversy, and the Tax Court refused to hear him.
I accordingly conclude that the deficiency tax herein assessed for the years 1935 to 1940, inclusive, included the penalties for those years and constituted an entire single liability; that the penalties herein sought as a part of this entire single liability were not the subject of a statutory notice of deficiency; that having failed to so make them the subject of such statutory notice, and the taxpayer having sought a review by the Tax Court wherein it was limited to such claims as were the subject of a statutory notice of deficiency and the Tax Court having passed in review upon the matter, refusing to permit the Commissioner to pose the said penalties as in controversy, and the Court of Appeals affirming the action of the Tax Court, the matter became final.
An order will be entered refusing plaintiff's motion for summary judgment and granting defendant's motion for dismissal.